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  • Fri, Aug 14 2009
  • 8:01 AM » American CoreLogic: More than 15.2 Million Mortgage Holders Underwater
    Published Fri, Aug 14 2009 8:01 AM by Calculated Risk Blog
    The First American CoreLogic for June 2009 is available on line. You have to sign up to read the report. More than 15.2 million U.S. mortgages or 32.2 percent of all mortgaged properties were in negative equity position as of June 30, 2009 according to newly released data from First American CoreLogic. June’s negative equity share was slightly lower than the 32.5 percent as of the end of March 2009 and it reflects the recent flattening of monthly home price changes. As of June 2009, there were an additional 2.5 million mortgaged properties that were approaching negative equity and negative equity and near negative equity mortgages combined account for nearly 38 percent of all residential properties with a mortgage nationwide. The aggregate property value for loans in a negative equity position was $3.4 trillion, which represents the total property value at risk of default. In California, the aggregate value of homes that are in negative equity was $969 billion, followed by Florida ($432 billion), New Jersey ($146 billion), Illinois ($146 billion) and Arizona ($140 billion). Los Angeles had over $310 billion in aggregate property value in a negative equity position, followed by New York ($183 billion), Miami ($152 billion), Washington DC ($149 billion) and Chicago ($134 billion). ... Nevada (66 percent) had the highest percentage with nearly two‐thirds of mortgage borrowers in a negative equity position. In Arizona (51 percent) and Florida (49 percent), half of all mortgage borrowers were in a negative equity position. Michigan (48 percent) and California (42 percent) round out the top five states. Click on graph for larger image in new window. This graph shows the percent of households with mortgages underwater by state (and near negative equity defined as with less than 5% equity). UPDATE: States with no data from CoreLogic: Louisiana, Maine, Mississippi, South Dakota, Vermont, West Virginia, Wyoming. The high population states of California and Florida account for...
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 8:01 AM » Judge Rules for BofA Against Colonial Bank, New Cease & Desist Disclosed
    Published Fri, Aug 14 2009 8:01 AM by Calculated Risk Blog
    Form Bloomberg: U.S. District Judge Adalberto Jordan in Miami issued the order after Bank of America sued Colonial yesterday in Miami, claiming Colonial is holding the cash and loans as a custodian for Ocala Funding Inc. The order notes that the suit relates to more than 6,000 mortgages worth more than $1 billion. “To the extent that the interests of the public are implicated in this case, they weigh in favor of requiring Colonial to honor its contractual obligations and avoiding what would amount to a $1 billion heist,” the judge said in an order posted online today. In another action, from [Henley Holdings LLC] filed suit in the U.S. District Court for the Middle District of Florida, accusing Taylor Bean of breach of contract. It also sought temporary injunctive relief, asking the court to force Taylor Bean to immediately deposit the $4.7 million into an account at a separate bank. Henley was worried because Taylor Bean had essentially shut its doors, and because if Colonial failed, only $250,000 of Henley money would be covered by FDIC insurance. That same day, a federal judge granted Henley's request and ordered at least $4.4 million of the company's funds put into an interest-bearing account within the court registry. Court records show that Taylor Bean turned over that amount the next day. What is interesting about the second action is that apparently Colonial Bank disclosed a new FDIC Cease & Desist order dated Aug. 11th. I'm told the FDIC order instructs Colonial to obtain FDIC approval for most activities, requires "prompt and unrestricted access" to all bank documents and employees, and requires proceduces to prevent the destruction of any bank documents.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 8:01 AM » Real Estate Has Hit Bottom? Not Even Close
    Published Fri, Aug 14 2009 8:01 AM by Seeking Alpha
    submits: Correct me if I am wrong, but hasn’t real estate hit its bottom? According to CNBC, TV, Cramer said that real estate hit its bottom, ‘early’, in June and all other reports yesterday said everything is fine and prices will go up,up,up! However, as usual, has conflicting stories. For example, CNBC TV says it' bull market with hot economic growth and there is no risk in this bull market, but is awash with stories saying the global markets are in trouble and real estate is in pretty bad shape. This is what makes me question the integrity of CNBC commentators, who I once respected.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 7:30 AM » Toward Greater Bank Transparency: FASB Considering Expanded Mark-to-Market Rules
    Published Fri, Aug 14 2009 7:30 AM by Seeking Alpha
    submits: The FASB, or Financial Accounting Standards Board, is considering expanding its mark-to-market rules with loans instead of only securities. I bet you thought this issue was dead n April when Congress forced the FASB to relax on this rule for securities, but this is an entirely new issue as they want loans priced to market instead of just securities. This is a major problem for banks, which oppose this rule. The banks blame the mark-to-market rules for the financial crisis itself, when in fact it was their own bad decisions that caused the problem, not the rule, which is absurd. However, I am not sure about this new proposed rule as it could cause a major problem within banks themselves. I am not sure what the FASB is really thinking, but it is safe to assume that they think that there is a problem with the way loans are currently valued.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • Thu, Aug 13 2009
  • 6:51 PM » A Look Inside Fed’s Balance Sheet — 8/13/09 Update
    Published Thu, Aug 13 2009 6:51 PM by WSJ
    You need to upgrade your Flash Player The Fed’s balance sheet expanded in the latest week, but remained below $2 trillion. Direct-bank lending edged up a bit, but remains below $275 billion. The makeup of the balance sheet continued to shift out of emergency facilities and into debt holdings. Treasurys and agency debt continued their upward march, though holdings of mortgage-backed securities were flat. The Fed started a program in March to ramp up such acquisitions in order to push down long-term interest rates low. Central-bank liquidity swaps declined again, as overseas demand for dollars continues to abate. The commercial paper and money market facilities dropped again and at their lowest levels since inception, as companies decide to take their funds out and tap investors directly as sentiment in the market improves. In an effort to track the Fed’s actions, Real Time Economics has created an interactive graphic that will mark the expansion of the central bank’s balance sheet. Every Thursday afternoon, the chart will be updated with released by the Fed. In an effort to simplify the composition of the balance sheet, some elements have been consolidated. Portfolios holding assets from the Bear Stearns and AIG rescues have been put into one category, as have facilities aimed at supporting commercial paper and money markets. The direct bank lending group includes term auction credit, as well as loans extended through the discount window and similar programs. Central bank liquidity swaps refer to Fed programs with foreign central banks that allow the institutions to lend out foreign currency to their local banks. Repurchase agreements are short-term temporary purchases of securities from banks, which are looking for liquidity and agree to repurchase them on a specified date at a specified price. Click and drag your mouse to zoom in on the chart. Clicking the check mark on categories can add or remove elements from the balance sheet.
  • 6:51 PM » HUD announces posting of frequently asked questions on new RESPA rule
    Published Thu, Aug 13 2009 6:51 PM by
    WASHINGTON - U.S. Department of Housing and Urban Development Assistant Secretary for Housing-Federal Housing Commissioner David Stevens today announced the first release of frequently asked questions (FAQs) concerning implementation of the new Real Estate Settlement Procedures Act (RESPA) rule. The FAQs were compiled from questions received from industry since the publication of the Rule.
  • 12:37 PM » BofA Sues Colonial for $1 Billion
    Published Thu, Aug 13 2009 12:37 PM by Calculated Risk Blog
    From Reuters: Bank of America Corp sued Colonial BancGroup Inc for more than $1 billion in loans and cash ... Bank of America, which was the collateral agent for certain loans of Ocala Funding LLC, said Colonial refused to return more than $1 billion of loans and cash which it held as a custodian, agent and bailee. Ocala Funding was a commercial paper vehicle sponsored by Taylor, Bean & Whitaker Mortgage Corp (TBW).... Bank of America sought an emergency injunctive relief in a complaint filed with a U.S. federal court in Florida on Wednesday. ... The case is In re : Bank of America National Association vs Colonial Bank and John Doe, U.S. District Court, Southern District of Florida, Miami Division 1:09-cv-22384-AJ. It appears the FDIC is doing a little housekeeping (): Colonial Bank ... received notice on August 10, 2009 from the Federal Deposit Insurance Corporation ... directing CBG Florida REIT Corp., an indirect subsidiary of the Bank, to exchange all outstanding shares of its Fixed-to-Floating Rate Perpetual Non-cumulative Preferred Stock, Class A, Series A ... for an equal amount of Fixed-to-Floating Rate Perpetual Non-cumulative Preferred Stock, Series A of BancGroup Colonial appears to be in tatters, and my guess is the FDIC will seize the bank, before they find a buyer for the assets, and operate the bank as conservator. (like with last year).
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 12:37 PM » Cash For Clunkers For Housing Market Is 'No Brainer'
    Published Thu, Aug 13 2009 12:37 PM by Google News
    Caroline Baum sent me the following Bloomberg clips. 14:58 *TOLL BROTHERS CHIEF ROBERT TOLL MAKES COMMENTS ON CONF CALL 14:57 *CASH FOR CLUNKERS FOR HOUSING MARKET WOULD JUMPSTART ECONOMY 14:57 *CASH FOR CLUNKERS FOR HOUSING MARKET IS `NO BRAINER,' TOLL SAYS 14:57 *U.S. SHOULD DO `CASH FOR CLUNKERS' FOR HOUSING, TOLL SAYS Caroline also had this comment on the record that I heartily endorse: " Yeah, no brainer. You have to have no brains to think this is answer! " For more on the brainless nature of such proposals please see . One might wonder if Robert Toll is really as brain dead as he sounds or if he is simply speaking about what is good for Robert Toll, not the economy. A timely Exodus Inquiring minds are reading . Fifteen corporate chieftains of large home-building and financial-services firms each reaped more than $100 million in cash compensation and proceeds from stock sales during the past five years, according to a Wall Street Journal analysis. Four of those executives, including the heads of Lehman Brothers Holdings Inc. and Bear Stearns Cos., ran companies that have filed for bankruptcy protection or seen their share prices fall more than 90% from their peak. The study, which examined filings at 120 public companies in such sectors as banking, mortgage finance, student lending, stock brokerage and home building, showed that top executives and directors of the firms cashed out a total of more than $21 billion during the period. Some experts say huge paydays inevitably coincide with economic booms. In the tech bubble of the late 1990s, more than 50 individuals each made more than $100 million from selling shares just prior to the crash. Many had just founded companies that had never turned a profit. "The system tends to reward people for participating in bubbles," says Roy C. Smith, a finance professor at New York University's business school. Dwight Schar, chairman of NVR Inc., a Reston, Va., home builder best known as the parent...
  • 10:37 AM » Next Bubble to Burst Is Banks’ Big Loan Values: Jonathan Weil
    Published Thu, Aug 13 2009 10:37 AM by Bloomberg
    Check out the footnotes to ’s latest quarterly report, and you’ll see a remarkable disclosure. There, in an easy-to-read chart, the company divulged that the loans on its books as of June 30 were worth $22.8 billion less than what its balance sheet said. The Birmingham, Alabama-based bank’s shareholder equity, by comparison, was just $18.7 billion.
  • 8:13 AM » Treasury Purchase Program Extended, But Not Increased
    Published Thu, Aug 13 2009 8:13 AM by Seeking Alpha
    submits: From the released a few minutes ago by the Fed: The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 8:12 AM » More Signs of a Housing Bottom
    Published Thu, Aug 13 2009 8:12 AM by Seeking Alpha
    submits: The National Association of Realtors (NAR) released its quarterly metropolitan home sales report yesterday, and I found some bullish undertones in it. While most people are focusing on the continued large year/year price drops, I have not heard anyone focusing on the fact that most cities showed sequential (qtr/qtr) price gains for the first time in roughly 2 years !
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 8:12 AM » U.S. home foreclosures set another record in July
    Published Thu, Aug 13 2009 8:12 AM by Reuters
    NEW YORK (Reuters) - U.S. home loans failed at a record pace in July despite ongoing federal and state programs to avoid foreclosures, which have severely strained housing and the economy.
  • 8:12 AM » Another looming housing crisis
    Published Thu, Aug 13 2009 8:12 AM by CNN
    Karen Weaver, global head of Deutsche Bank's securitization research division -- responsible for analyzing credit default swaps, collateralized mortgage obligations, and other exotic Wall Street products -- said last week that 48% of U.S. mortgage owners will end up owing more than their home is worth by 2011.
  • 8:08 AM » 2nd Quarter Existing-Home Sales Rise in Most States, Helped by Affordable Metro Prices
    Published Thu, Aug 13 2009 8:08 AM by Realtor.Org
    Existing-home sales in the second quarter showed healthy gains from the first quarter in the vast majority of states, and price declines have increased affordability in most metro areas, according to the latest survey by the National Association of Realtors®.
  • 7:41 AM » National Data: Distressed Sales and Types of Buyers
    Published Thu, Aug 13 2009 7:41 AM by Calculated Risk Blog
    Here is some national data on the number of distressed sales in Q2, and the types of homebuyers. This is from a survey by Campbell Communications (excerpted with permission). Source: , Campbell Communications, June 2009 Click on graph for larger image in new window. The Campbell survey broke REOs down into damaged and move-in ready. According to this national survey of real estate agents, over 63% of sales were distressed sales in Q2. This is higher than the numbers reported by NAR. : Distressed properties ... accounted for 31 percent of sales in June ... Distressed properties, which declined to 33 percent of all sales in May from 45 percent in April ... The Campbell numbers seem high to me. In Sacramento over 70% of sales in June were distressed, and I'd expect that area to well above the national level. But the NAR numbers seem low. The second graph breaks out sales by buyer type. According to the Campbell survey over 70% of sales in Q2 were to first-time buyers and investors. Although we don't have historical data for distressed properties - or buyer types - this does suggest a market that is far from normal with few move-across or move-up buyers.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 7:41 AM » California AG Cracks Down on Loan Modifiers
    Published Thu, Aug 13 2009 7:41 AM by Calculated Risk Blog
    From California AG Jerry Brown: (ht ) Threatening possible criminal and civil prosecution, Attorney General Edmund G. Brown Jr. today ordered 386 mortgage foreclosure consultants to post $100,000 bonds and register with his office. He also ordered more than two dozen companies to justify suspicious loan modification claims made in "slick advertising," online and through the mail. ... Brown has sent letters directing 386 mortgage foreclosure consultants to register with his office within 10 days and post $100,000 bond, or demonstrate why they are not required to. If the consultants are required to register and have failed to do so, they are subject to criminal penalties of up to a year in jail and fines ranging from $1,000 to $25,000 per violation. Eighty-five of these consultants are based in Los Angeles County, 133 in Orange County, 47 in the Inland Empire, 68 in San Diego County and seven in the Bay Area. ... The State Bar of California today announced that it has obtained resignations from two lawyers and filed charges against a third for their loan modification activities. And check out some of this advertising that Brown demanded loan consultants substantiate: · Brown directed Irsfeld, Irsfeld & Younger, LLP as corporate counsel for JL Richman, doing business as Home Retention Programs of Glendale, Calif. to substantiate its claims including: "Our team has 10 years of success in negotiating 90% of all mortgage loan modification requests to a successful outcome….For the modification requests we accept, our modification failure rate is less than 1%." · Brown directed 21st Century Real Estate Investment Corporation of Rancho Cucamonga to substantiate its written solicitations including: "[y]our proposed loan modification is a 30 year fixed/3.5% interest rate with a monthly payment of $495. Your monthly savings is $705. Total savings over a 30-year period is $253,800. . . . Your first payment will be negotiated to begin March 2009 - payable...
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • Wed, Aug 12 2009
  • 4:43 PM » Social Safety Nets Mask Deflationary Depression
    Published Wed, Aug 12 2009 4:43 PM by Google News
    In a recent video Robert Prechter says the and that a deflationary depression is coming. According to Prechter, the Elliott Wave pattern in the US dollar confirms we recently hit the fifth wave down. Next stop is up. He also notes that sentiment has reached an extreme: "The Dollar Sentiment Index for the Dollar Index reports just 3% bulls among traders, an extreme level only five times in the past 20 years, usually near an important low," Prechter wrote on Aug. 5. "The last time we saw readings like this was March-July 2008, just before the dollar soared." In other words, the "short the dollar" trade is overly crowded. I mentioned the wave pattern on July 31 in . Here is an updated chart. US$ Weekly Chart click on chart for sharper image Note that bearish sentiment on the dollar is at an all time high even though the dollar index is substantially higher than it was in April and July of 2008. That's bullish for the dollar. I still show two "?" on the chart because technically wave 5's can extend. However, fundamentally and technically I do not expect expect it to extend, at least by much. Social Safety Nets Mask Deflationary Depression Prechter is looking for a "major economic depression". I think it is clear we are already in one. The only reason it is not more readily visible is people are living in foreclosed houses unable or unwilling to pay their mortgage, one in nine living in the US is on food stamps, and unemployment insurance has been extended twice. Congress is now debating extending it a third time. If Congress does not act . Although the official unememployment rate is a mere 9.5% alternative measures show it is over 16%. Moreover, an unprecedented 4.4 million workers have been unemployed and looking for work for 26 weeks or longer. Please see and for details about jobs. In simple terms, more social safety nets are in place now than during the great depression. Steepest Credit Contraction in Over Five...
  • 4:42 PM » Commercial Loan Losses Cast Shadow over Regional Banks
    Published Wed, Aug 12 2009 4:42 PM by Seeking Alpha
    submits: Excerpted from Despite some hopeful signs of relief for U.S. banks in second-quarter 2009, the next several quarters likely will continue to be a struggle, especially for small regional institutions, Standard & Poor’s Ratings Services analysts said during a quarterly conference call on Aug. 6. Overall, the industry outlook remains predominantly negative, in part because of banks’ lower profit margins related to still-heavy provisioning required for increased reserve building. Asset-quality deterioration shifted to commercial lending, both commercial and industrial and commercial real estate (CRE), from consumer-related loans.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 4:41 PM » Congressional Oversight Panel Releases Oversight Report on the Continued Risk of Troubled Assets
    Published Wed, Aug 12 2009 4:41 PM by
    Financial Stability is at Risk if the Underlying Problem of Troubled Assets Remains Unresolved WASHINGTON, D.C. — The Congressional Oversight Panel (COP) today released its August oversight report, "The Continued Risk of Troubled Assets," which examines the economic implications of troubled assets and assesses Treasury's strategy for removing these assets from bank balance sheets. The Panel found that the future performance of the economy and the performance of the underlying loans, as well as the method of valuation of the assets, are critical to the continued operation of the banks. Last fall, as increasing numbers of subprime mortgage-holders defaulted on their loans, the financial markets for these assets effectively ceased to function. In response to the crisis, Treasury proposed a major government program to move hundreds of billions of dollars in troubled assets off the banks’ books. But by the time the Troubled Asset Relief Program (TARP) was signed into law in early October, Treasury had decided to use TARP funds to pursue a different strategy: providing banks with a capital buffer to write-down many of their troubled assets and to build reserves for the future. Today, ten months later, substantial troubled assets remain on banks' balance sheets. Treasury has launched the new Public-Private Investment Program (PPIP) in an effort to restart the mortgage-backed asset market. The Panel's report raises several questions about the program, including whether accounting rules that allow banks to carry assets at higher valuations will diminish their willingness to sell, and whether potential buyers may decline to participate due to concerns about political interference or government restrictions. PPIP could help to jump-start the troubled asset market, but serious questions remain about its effectiveness. For smaller banks, those not among the 19 stress tested bank holding companies, troubled assets pose special challenges that have not been acknowledged...
    Click Here to Read the Full Article

  • 4:40 PM » Statement Regarding Purchases of Treasury Securities
    Published Wed, Aug 12 2009 4:40 PM by NY Fed
    Statement Regarding Purchases of Treasury Securities
  • 4:39 PM » Administration’s Regulatory Reform Agenda Reaches New Milestone
    Published Wed, Aug 12 2009 4:39 PM by US Treasury
    To view or print the PDF content on this page, download the free . August 11, 2009 TG-261 Administration’s Regulatory Reform Agenda Reaches New Milestone: Final Piece of Legislative Language Delivered to Capitol Hill For the legislative language, visit . Acting on its commitment to restoring stability in our financial system, the Administration delivered legislative language to Capitol Hill today focusing on the regulatory reform of over-the-counter (OTC) derivatives. One of the most significant changes in the world of finance in recent decades has been the explosive growth and rapid innovation in the markets for credit default swaps (CDS) and other OTC derivatives. These markets have largely gone unregulated since their inception. Enormous risks built up in these markets – substantially out of the view or control of regulators – and these risks contributed to the collapse of major financial firms in the past year and severe stress throughout the financial system. Under the Administration's legislation, the OTC derivative markets will be comprehensively regulated for the first time. The legislation will provide for regulation and transparency for all OTC derivative transactions; strong prudential and business conduct regulation of all OTC derivative dealers and other major participants in the OTC derivative markets; and improved regulatory and enforcement tools to prevent manipulation, fraud, and other abuses in these markets. Today's delivery marks an important new milestone, as the Administration has now delivered a comprehensive package of financial regulatory reform legislation to Capitol Hill. Less than two months since the release of its white paper, "Financial Regulatory Reform: A New Foundation," on June 17, the Administration has successfully translated all of its proposals into detailed legislative text – a remarkable effort in both speed and scope. The Administration looks forward to working with Congress to pass a comprehensive regulatory...
  • 4:39 PM » Creating a Central Foreclosure and Mortgage Database: The Urgent Need to Centralize Housing Data.
    Published Wed, Aug 12 2009 4:39 PM by Google News
    There is an urgent need to centralize important pieces of housing data. I view this on the level of employment data or even calculating GDP. Housing has become such a crucial component of our nation’s economy that I am stunned, nearly two years into this crisis that we have not spent any money in a concerted effort to bring housing data under one umbrella. We spend trillions in bailouts yet will not allocate what, a few million to create a central hub of this information? When we investigated Southern California we used three different sources to come up with our estimate that . Some argue that this issue is minor and will have a minor impact on the overall market. Others argue that shadow inventory is much larger than many would expect and this will have an effect on the overall market. In searching for for example, we have to rely on multiple sources of data including the Federal Reserve and independent studies. We have a raw number of loans and average balances yet this data is not connected in any easy format to foreclosures: I view this as an urgent need. If we are to conduct any thorough analysis it would be useful to have the multiple data providers under one central hub. Take for example California and two large data providers in RealtyTrac and DataQuick. Let us look at distress property data for Q2 of 2009: DataQuick (Q2 2009): Notice of Defaults: 124,562 Trustee Deeds Recorded: 45,667 RealtyTrac (Q2 2009): Notice of Defaults: 124,275 Notice of Trustee Sale: 45,419 At least with these two data points, we realize that both sources are nearly on the same page. Yet this is where a lot of darkness begins to emerge. We know that many banks are taking properties back as REOs. How many? To figure this out we would first need to have banks reporting to one central hub and ideally providing data on the properties they have on their books. Some would argue that this data is proprietary. I would argue that since banks are using trillions in taxpayer bailouts they really...
  • 4:39 PM » Where Exactly Are Home Prices Rising?
    Published Wed, Aug 12 2009 4:39 PM by CNBC
    Posted By: Amid the ever-growing number of real estate tracking reports, I've recently seen a few that claim home prices have hit bottom, and therefore the housing crash is not only over, but housing is now suddenly a cash cow again. These reports infuriate me, because as much as I'd like to see healthy home price appreciation (yes, I own a home), it's just not true. Topics: | | Sectors: | MEDIA:
  • 11:28 AM » Kass’s Summary of Bearishness
    Published Wed, Aug 12 2009 11:28 AM by The Big Picture
    Doug Kass very publicly made a prescient bottom call in early March. He has now flipped Bearish, and explains why: 1. Cost cuts are a corporate lifeline and so is fiscal stimulus, but both have a defined and limited life. 2. Cost cuts (exacerbated by wage deflation) pose an enduring threat to the consumer, which is still the most significant contributor to domestic growth. 3. The consumer entered the current downcycle exposed and levered to the hilt, and net worths have been damaged and will need to be repaired through higher savings and lower consumption. 4. The credit aftershock will continue to haunt the economy. 5. The effect of the Fed’s monetarist experiment and its impact on investing and spending still remain uncertain. 6. While the housing market has stabilized, its recovery will be muted, and there are few growth drivers to replace the important role taken by the real estate markets in the prior upturn. 7. Commercial real estate has only begun to enter a cyclical downturn. 8. While the public works component of public policy is a stimulant, the impact might be more muted than is generally recognized. There may be less than meets the eye as most of the current fiscal policy initiatives represent transfer payments that have a negative multiplier and create work disincentives. 9. Municipalities have historically provided economic stability — no more. 10. Federal, state and local taxes will be rising as the deficit must eventually be funded, and high-tax health and energy bills also loom. Doug points to the animal spirits in full force, shorts scrambling to cover, and a crowded bullish sentiment as additional reasons for the tactical shift. He believes a “self-sustaining economic recovery appears doubtful” That fits in well with my 1973/74 parallel of the current market environment. > Source : Doug Kass The, 08/10/09
    Click Here to Read the Full Article

    Source: The Big Picture
  • 9:23 AM » Toxic Assets Are Still a Threat to the Economy
    Published Wed, Aug 12 2009 9:23 AM by Seeking Alpha
    submits: The Congressional oversight panel (COP) of the TARP program is just out with its August . A few choice excerpts, with commentary: Treasury‘s choice to pursue direct capital purchases resulted in a notable stabilization of the financial system, and it allowed the write-down of billions of dollars of troubled assets and reserve building. But, it is likely that an overwhelming portion of the troubled assets from last October remain on bank balance sheets today.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 9:23 AM » Guest Post: Will Commercial Real Estate Woes Sink Pensions?
    Published Wed, Aug 12 2009 9:23 AM by Google News
    Submitted by Leo Kolivakis, publisher of . Last October, I wrote an article asking, Of course, I knew the answer to that question and saw the writing on the wall a long time ago. Today, the Boston Globe published an article stating : The collapse in commercial real estate is preventing Federal Reserve chairman Ben S. Bernanke from declaring the economy and financial markets are healed. Property values have fallen 35 percent since October 2007, according to Moody’s Investors Service. That’s making it tough for owners to refinance almost $165 billion of mortgages for skyscrapers, shopping malls, and hotels this year, pressuring companies such as Maguire Properties Inc., the largest office landlord in downtown Los Angeles, to put buildings up for sale. The industry is likely to be high on the agenda when Bernanke and his colleagues sit down in Washington today at the Federal Open Market Committee meeting on monetary policy. Lawmakers including Barney Frank and Carolyn Maloney are pushing the central bank to extend an aid program designed to restore the flow of credit. If nonresidential real estate remains in the doldrums, the Fed may be forced to leave emergency-lending programs in place and keep its benchmark interest rate close to zero for longer than some investors expect, given positive signs elsewhere in the economy. Commercial property is “certainly going to be a significant drag’’ on growth, said Dean Maki, a former Fed researcher who is now chief US economist in New York at Barclays Capital Inc., the investment banking division of London-based Barclays PLC. “The bigger risk from it would be if it causes unexpected losses to financial firms that lead to another financial crisis.’’ The Fed is “paying very close attention,’’ Bernanke, 55, told the Senate Banking Committee on July 22, the second of two days of semiannual monetary-policy testimony before the House and Senate. “As the recession’s gotten worse in the last six months or so, we’re seeing increased vacancy...
  • 9:13 AM » Report: Record Number of California Foreclosures Scheduled For Sale
    Published Wed, Aug 12 2009 9:13 AM by Calculated Risk Blog
    From ForeclosureRadar: [F]oreclosure stats were mixed, with Notice of Default filings flat, Notice of Trustee Sale filings rising by 31.6 percent and foreclosure sales dropping 22.7 percent. The number of properties scheduled for foreclosure sale – new Notices of Trustee Sale minus those sales that have cancelled or sold – rose to a record level ... Foreclosures scheduled for sale rose to 124,874, a 10.4 percent increase from the prior month, and a 93.3 percent increase year-over-year from July 2008. The year-over-year increase is significant given that foreclosure sales in July 2008 set a record that has not again been reached. The increase appears to be primarily due to the fact that lenders are willingly postponing foreclosure sales. ... Political pressure, financial incentives and the postponement of sales awaiting the completion of loan modification trial periods are likely reasons for the delays. The vast majority of foreclosures, 72 percent, are postponing either due to lenders request, or mutual agreement between the lender and borrower. The average California foreclosure has a total loan balance of $425,134 on a home that is now worth $236,739. Whether or not there is a flood of foreclosures soon appears to depend on the loan mods. Notice that foreclosures remain pending during the loan mod trial period - so it is possible that the lenders will start cancelling many of these 'Notices of Trustee Sale' soon if the mods are successful.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 9:12 AM » Economy Does Better Without Doing Well
    Published Wed, Aug 12 2009 9:12 AM by WSJ
    Most economists in said that the recession is over, but as the economy moves into a recovery period the state of the consumer remains a key question. When asked if a substantial increase in consumer spending is necessary for sustained economic growth, about 40% of the economists said “no.” Recently Morgan Stanley economists presented , and none of them relied on the consumer. “Modest consumption, government spending, exports and inventory rebuilding can bring it about,” said Allen Sinai of Decision Economics . Indeed any hope for recovery is going to have to come on the back of moderate increases in consumer spending. The economists don’t expect personal consumption expenditures to rise more than 2% through the first half of 2010. That’s down from average growth rates over 3% in postwar period and a far cry growth rates over 5% in the late 1990s. While the majority of economists expect a recovery, 60% still think consumer spending needs to increase substantially for sustained growth. Though, David Resler of Nomura Securities points out that after the major hit spending took in the last year, any increase over would be substantial. “You have to distinguish between doing better and doing well,” said Neal Soss of Credit Suisse . He points out that the economy is going to recover, because it was hit so hard, but the state of the consumer means it’s likely to be a long slog to bring down unemployment. Even as the economy recovers and the jobless rate starts to come down, consumer spending is going to be closely tied to wage increases. “Private-sector wages remain the single most important component” of consumer spending growth, Goldman Sachs economists recently wrote in a research note. And that’s going to be a tall order. Employment data has shown wages remain under pressure, and the enormous slack built up in the labor market following the massive job cuts of the last year is likely to keep a lid on wages for the foreseeable future. While the economy is likely to be doing...
  • 9:10 AM » Re-Evaluating Too Big to Fail
    Published Wed, Aug 12 2009 9:10 AM by WSJ
    A simple and straightforward approach to identifying too-big-to-fail financial institutions is very likely unworkable, from the Federal Reserve Bank of Cleveland says. The poster child for too big to fail. (Getty Images) Dealing with these so-called systemically important financial institutions has been at the forefront of policy makers’ attention since the start of the financial crisis two years ago. Authorities have been repeatedly confronted with a series of banks and other entities seen as top-tier, only to see them fall or run into hard-to-fathom difficulties. Federal Reserve and Treasury leaders have been forced to bail out firms, arguing that their collapse would cause even greater harm to the rest of economy. The actions taken by officials have been so unprecedented as to call into question the very foundations of free market capitalism itself. The interventions have been largely ad hoc, with no clear standard as to what constitutes a systemically important firm. Bear Stearns received major Federal Reserve assistance as part of an effort to sell it to J.P. Morgan Chase . American International Group also got a big bailout, but Lehman Brothers was allowed to fail. Many of the biggest banks in the nation received capital injections from the Treasury, although some of that has already been paid back. Right now, Congress is mulling ways to improve the regulatory structure over finance. Many expect this process will grant the Fed new powers. But some sort of method for identifying these systemically important firms will be needed, as well as a process for mitigating the risks created by these firms. Cleveland Fed economist James Thomson sidesteps matters of reform in favor of offering a framework to identify systemically important banks, in the paper published Tuesday. The paper argues against adopting a blunt force approach. The economist instead advocates a form of identification that looks at a blend of factors. A firm’s size should be weighed in conjunction with...
  • 9:09 AM » Two Ways: Fed's Quantitative Easing in Focus
    Published Wed, Aug 12 2009 9:09 AM by
    FOMC Day All eyes are on the FOMC meeting today. Most market participants aren’t expecting any moves in the overnight Fed funds target rate but will be focused on what signals the Fed may give on its quantitative easing program which is set to expire in September.According to Bloomberg former Fed governor Laurence Meyer (1996-2002) predicts the central bank will announce an end to the program. Meanwhile other economists like Lee Hoskins (Cleveland Fed president 1987-1991) think the Fed is likely to leave the QE option open taking a hint from the Bank of England last week when it ...
    Click Here to Read the Full Article

  • 9:08 AM » Toll Brothers shares rise as outlook brightens
    Published Wed, Aug 12 2009 9:08 AM by Reuters
    NEW YORK (Reuters) - Luxury home builder Toll Brothers Inc said on Wednesday it expects to report a 42 percent drop in third-quarter homebuilding revenue, but said net signed contracts increased in the quarter and said home buyers are less concerned about prices.
  • 9:07 AM » First-time Buyers Get State Incentive
    Published Wed, Aug 12 2009 9:07 AM by Realtor.Org
    New York State offers new home owners a tax credit for 20 percent of their annual mortgage interest and good for the life of the laon.
  • 9:07 AM » Illinois "Appraisal Bill" HB 1015 must wait a little longer!
    Published Wed, Aug 12 2009 9:07 AM by Google News
    After three years of trying, it finally took a new Governor and a persistent to get Appraisal Bill - HB1015 passed. The Bill passed in the Senate on May 13th unanimously! It then went to Governor Pat Quinn for his signature. According to T.J. McCarthy of the Illinois Coalition of Appraisal Professionals ( ): "The long awaited signing of the Appraisal Bill will have to wait a little longer. Today the Governor made an amendatory veto and sent the Bill back to the House of Representatives. This means that we will have to wait until the fall for the House and Senate to accept the Governors suggested amendments and ultimately get this 3 year Bill to finally become a law. ICAP does not anticipate any future problems." Here is the Governor's letter: August 10, 2009 To the Honorable Members of the Illinois House of Representatives 96th General Assembly Today I return House Bill 1015 with my specific recommendations for change. This bill contains language conditioning the Department of Financial and Professional Regulation’s rulemaking ability on compliance with the provisions of the Illinois Administrative Procedure Act. This language is a remnant of the controversy surrounding certain rulemaking undertaken by my predecessor’s administration. In approving House Bill 398, my administration is committed to upholding the law and respecting the constitutionally protected powers of each branch of government. I approved House Bill 398 as a demonstration of this commitment. My approval of House Bill 398 renders the language related to rulemaking in this bill moot. It is time to move past the battles between my predecessor and members of the General Assembly. I am, therefore, deleting this language from the bill. Therefore, pursuant to Article IV, Section 9(e) of the Illinois Constitution of 1970, I hereby return House Bill 1015, entitled “AN ACT concerning regulation.”, with the following specific recommendations for change: on page 12, by deleting lines 20 through 26;...
  • 9:07 AM » Appraiser’s ‘rock ‘n hard place’ issue – the Client name in a report
    Published Wed, Aug 12 2009 9:07 AM by Google News
    SPECIAL WELCOME to Appraisal Scoop's Newest Author- David Towne of This is one of those ‘don’t shoot the messenger’ type articles. It contains true information that most appraisers may not know, or think they know, incorrectly. But if you ‘say’ you write reports with USPAP compliance, you may want to read and heed this information. There is commentary included below that you may want to include in your reports to prove USPAP compliance on this topic. The issue is this: “Does the NAME of a Client have to be shown in an appraisal report?” This is a trick question, and may not be as obvious as you think. Some appraisers may know the answer, but my suspicion is many don’t. I spent a good part of a day discussing this with a ‘Client’, with Ralph Birkedahl at the WA State Appraiser Section, and reading my copy of USPAP. It’s been a learning experience for me. So this is shared as a teaching experience. Class is now beginning……… This topic has relevance, due to the proliferation of AMC’s we deal with. Some of them do not want their name shown on the Lender/Client line, or anywhere else in the report. Often, you don’t find that out until you have already submitted the report, and they send back a ‘correction notice’ demanding that their name be taken out. First, who is a client? A Client is defined in USPAP as ‘the party or parties who engage the appraiser for the assignment.’ That is often the AMC, but can be the Lender. Is an AMC your Client, if they place the order directly with you? YES. Does the NAME of the Client have to be revealed in the report? NO! Can the Client also be the Lender? YES. Does the type of Client have to be revealed in the report? YES. Well then, what type of Client is the AMC? In my, and many other appraiser opinions, the AMC is an “Agent” of the Lender, because they are acting as the go-between from Lender to Appraiser. A ‘senior appraiser’ at one AMC also uses the word ‘agent’ to describe their relationship with the Lender who uses them for appraisal...
  • Tue, Aug 11 2009
  • 7:26 PM » Taylor Bean BK "Imminent"
    Published Tue, Aug 11 2009 7:26 PM by Calculated Risk Blog
    From the WSJ: A bankruptcy filing is "imminent" for Taylor, Bean & Whitaker Mortgage Corp., lawyers representing the mortgage lender said in a federal court filing last week. ... Meanwhile, an internal email at Taylor Bean dated Monday, Aug. 10, referred to a new computer folder "to assemble all of our bankruptcy detailed spreadsheets and support." No surprise. Nothing new on Colonial Bank (or Corus Bank, or Guaranty Bank in Texas). CIT created a little stir this morning with an filing. This was just a notice of CIT being unable to file on time - because the executives are busy - and that CIT expects to file by August 17th (just happens to be the date of the cash tender offer). CIT reiterated in the NT 10-Q that: If the tender offer is successfully completed , the Company intends to use the proceeds of the Credit Facility to complete the tender offer and make payment for the August 17 notes. Further, the Company and a Steering Committee of the bond holder lending group do not intend for the Company to seek relief under the U.S. Bankruptcy Code , but rather will pursue restructuring efforts as part of the comprehensive restructuring plan to enhance the Company’s liquidity and capital position. If the pending tender offer is not successfully completed , and the Company is unable to obtain alternative financing, an event of default under the provisions of the Credit Facility would result and the Company could seek relief under the U.S. Bankruptcy Code . emphasis added That isn't new. CIT also reiterated that there are substantial doubts that the company will continue as a going concern. In addition, as disclosed in the same Current Report on Form 8-K, the Company’s funding strategy and liquidity position have been materially adversely affected by on-going stress in the credit markets, operating losses, credit ratings downgrades, and regulatory and cash restrictions such that there is substantial doubt about the Company’s ability to continue as...
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 7:26 PM » Economic Turnaround
    Published Tue, Aug 11 2009 7:26 PM by The Big Picture
    Sad but true: >
    Click Here to Read the Full Article

    Source: The Big Picture
  • 7:26 PM » Commercial Mortgage Security Delinquencies Continue to Rise
    Published Tue, Aug 11 2009 7:26 PM by Seeking Alpha
    submits: U.S. CMBS loan delinquencies gained nearly a half-point to end the month of July at 3.04%, according to the latest delinquency index results from Fitch Ratings. At this current pace, Fitch anticipates the delinquency index to rise above 5% by year end. . Contributing to the rising number of past due loans is the current volume of performing specially serviced loans; the number of loans with low coverage that are depleting their reserves; and economic factors such as rising unemployment and lack of consumer spending, which will continue to impact commercial property fundamentals going forward.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 4:17 PM » CBRE: Retail Cap Rates Increase Sharply in Q2
    Published Tue, Aug 11 2009 4:17 PM by Calculated Risk Blog
    From CB Richard Ellis: Average US retail capitalization rates increased 55 basis points in the 2nd quarter of 2009 to 8.12% ... As some owners were unable to hold on, cap rates continued the upward march in the 2nd quarter. The 55 basis point gain is the largest quarterly increase we have ever measured, even trumping 2008 Q4. ... Our preliminary review of closed sales and escrows in the 3rd quarter indicate cap rates are continuing to rise. Click on graph for larger image in new window. This graph from CBRE shows the retail cap rate since 2003. Note that 2009 was based on just Q1 and Q2, and Q2 is already at 8.12% - and CBRE sees an additional cap rate increase in the early Q3 data. From Reuters in July, see: During the second quarter, the vacancy rate at U.S. strip malls reached 10 percent, the highest level since 1992, [Reis] said. ... asking rent fell 1.7 percent from a year ago to $19.28 per square foot. Asking rent fell 0.7 percent from the prior quarter. It was the largest single-quarter decline since Reis began tracking quarterly figures in 1999. Sharply lower rents, higher vacancy rates, reduced leverage and much higher cap rates - Brian calls this the "neutron bomb for RE equity"; destroys CRE investors, but leaves the buildings still standing.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 2:33 PM » Obama puts out details of his derivatives proposal
    Published Tue, Aug 11 2009 2:33 PM by Market Watch
    After weeks of delay, the White House on Tuesday released its regulatory reform plan for derivatives trading, including a provision that would require all standardized derivatives to trade on exchanges regulated by the Securities and Exchange Commission or the Commodity Futures Trading Commission.
  • 12:38 PM » Congressional Oversight Panel Warns of Threat to Smaller Banks
    Published Tue, Aug 11 2009 12:38 PM by Calculated Risk Blog
    From MarketWatch: According to a report from the Congressional Oversight Panel, which is charged with overseeing the $700 billion Troubled Asset Relief program, or TARP, the 18 largest financial institutions with over $600 million in assets would "be able to deal with" whole-loan portfolio losses. However, the report's analysis of troubled whole loans -- based on a model developed by SNL Financial -- suggests they pose a threat to smaller public banks, those with $600 million to $100 billion in assets. Here is the report: The problem of troubled assets is especially serious for the balance sheets of small banks. Small banks‘ troubled assets are generally whole loans, but Treasury‘s main program for removing troubled assets from banks‘ balance sheets, the PPIP will at present address only troubled mortgage securities and not whole loans. The problem is compounded by the fact that banks smaller than those subjected to stress tests also hold greater concentrations of commercial real estate loans , which pose a potential threat of high defaults. Moreover, small banks have more difficulty accessing the capital markets than larger banks. Despite these difficulties, the adequacy of small banks‘ capital buffers has not been evaluated under the stress tests. emphasis added The FDIC will stay very busy.
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    Source: Calculated Risk Blog
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